TIME VALUE OF MONEY ANALYSIS You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions:
2. What’s the present value of $100 to be received in 3 years if the interest rate is 4%, annual compounding?
2. What is its present value?
3. What would the future and present values be if it was an annuity due?
1. What is its present value?
2. What would the present value be if it was a 10-year annuity?
3. What would the present value be if it was a 25-year annuity?
4. What would the present value be if this was a perpetuity?
1. If she keeps saving in this manner, how much will she have accumulated at age 65?
2. If a 40-year-old investor began saving in this manner, how much would he have at age 65?
3. How much would the 40-year-old investor have to save each year to accumulate the same amount at 65 as the 20-year-old investor?
2. Define (a) the stated (or quoted or nominal) rate, (b) the periodic rate, and (c) the effective annual rate (EAR or EFF%).
3. What is the EAR corresponding to a nominal rate of 4% compounded semiannually? Compounded quarterly? Compounded daily?
4. What is the future value of $100 after 3 years under 4% semiannual compounding? Quarterly compounding?
2. What is the PV?
3. What would be wrong with your answer to parts l(1) and l(2) if you used the nominal rate, 4%, rather than the EAR or the periodic rate, INOM/2 = 4%/2 = 2%, to solve the problems?
2. What is the annual interest expense for the borrower and the annual interest income for the lender during Year 2?
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